The Investment Column: Sell-off means care homes group looks a bargain
Phorm; Leyshon Resources
Friday 15 February 2008
Our view: Good value
Share price: 407p (+38.75p)
Providing care homes for the elderly and disabled should offer one of the safest investments on the stock market. Local authorities pick up the bill and there is never any shortage of people needing a bed.
But Southern Cross Healthcare, in terms of the number of beds the largest operator in the country, has given investors a nasty fright. The shares have fallen 30 per cent in the past two months.
First, the board dumped more than 6 million shares because of worries over capital gains tax changes, then the finance chief decided to go. So there was all round relief yesterday on news that trading is on track.
The firm delivered a 61 per cent rise in earnings in the first quarter to £18m on a near 30 per cent rise in turnover. Another 2,000 beds were added taking the total to more than 36,000, weekly fee rates went up 5.3 per cent to £512, and occupancy levels remained firm if slightly down. Vacant beds are not filled so quickly over the Christmas period.
The pipeline of new developments looks strong with another 2,000 extra beds this year. There is no real limit on future expansion. The only constraint is finding the right sites. Another £30m of funding has been arranged to help with growth plans which could include acquisitions.
Higher fees will cover increasing energy, food and staff but a tight rein will need to be kept on costs. The firm tied itself into a two-year energy deal saving £2m a year but that runs out in 2009.
Floated at 225p in July 2006 the shares topped 600p last year before falling out of bed. They were tipped here at 580p in early December, days before the share sales. They now sell on just over 15 times forecast earnings for 2008. For a company offering all the defensive attributes of caring for the elderly in an ageing population that looks good value.
Our view: Tempting
Share price: 3,212p (+300p)
Imagine you like Porsches, Indian food and holidays in Bermuda. You pull up at a set of traffic lights and the giant billboard by the roadside flashes adverts for... fast cars, spicy food and sunshine breaks.
A breakthrough in the way advertisers will be able to target individual internet users has been achieved by media technology group Phorm whose shares rose sharply on a tie up with internet service providers, BT, TalkTalk and Virgin Media.
The technology sounds impressive and the potential is great. The company stands to generate revenue based on how much advertisers are prepared to pay to target potential customers.
However, trying to do the sums for Phorm are almost impossible. One broker attempted to place a value on how much BT could benefit from its share of the cake and came up with £85m. For Carphone, which owns TalkTalk, it was £65m.
The appeal is clear. Online advertising is reckoned to be worth $27bn and rising, yet many of the adverts are blasted out indiscriminately with little idea of whether they will reach their intended audience. Currently, firms advertise to appear on a particular page on the web when a certain keyword is used but can miss their target by a mile.
What Phorm has done is to introduce technology which captures all the relevant data from a user's browsing session. That information is processed and made available on a special internet exchange which allows advertisers to bid for the rights to direct their message to a particular user – although there are security safeguards to protect that person's identity.
Phorm, based in Delaware, was floated on AIM in late 2004 by former Morgan Stanley banker Kent Ertugrul and continues to attract blue chip support. Still heavily loss making, the shares jumped 10 per cent to 3,212p. A tempting punt.
Our view: Speculative
Share price: 28.5p (+1p)
AIM-listed Leyshon Resources claims an ounce of gold is worth more in the ground in China than anywhere else in the world because of its low operating costs.
That will soon be put to the test. Leyshon is developing the Zheng Guang mine in north-east China. Current resources are put at more than 1.5 million ounces.
The company, which owns 70 per cent of the project with the balance held by the Chinese authorities, seems to have had a remarkably smooth ride since forming the joint venture less than four years ago.
That is probably down to its skill in working with local labour and good communications in the mineral-rich area. Everything is in place to begin extracting gold early next year starting at 25-30,000 ounces and building up from there. Leyshon estimates the gold has cost $5 an ounce to find and will cost $250 to recover – well below global averages of $400.
Leyshon, which has heavyweight investors such as Newmont, has so far raised nearly £14m with share placings between 14p and 22p. Shareholders should soon hear of the next round of funding. About £17m is needed to kick start production. Speculative.
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